There are two prices that are critical for any investor to know: the current price of the investment he or she owns, or plans to own, and its future selling price. Despite this, investors are constantly reviewing past pricing history and using it to influence their future investment decisions. Some investors won’t buy a stock or index that has risen too sharply, because they assume that it’s due for a correction, while other investors avoid a falling stock, because they fear that it will continue to deteriorate.
Does academic evidence support these types of predictions, based on recent pricing? In this article, we’ll look at four different views of the market and learn more about the associated academic research that supports each view. The conclusions will help you better understand how the market functions, and perhaps eliminate some of your own biases.
Momentum“Don’t fight the tape.” This widely quoted piece of stock market wisdom warns investors not to get in the way of...
